DEFINITION of Crypto Commodity

Crypto-commodity is a general term used to describe a tradable or fungible asset that may represent a commodity, utility, or a contract in the real- or the virtual-world on the blockchain network through exclusive tokens.

BREAKING DOWN Crypto Commodity

A quick dive into the evolutionary history of cryptocurrency platforms is helpful in understanding the concept of crypto-commodities.

As the bitcoin network evolved, it gained huge popularity for its ease of payment processing and its anonymous and decentralized nature. The technology stalwarts were quick to realize the tremendous potential of the blockchain network and conceptualized its enormous capacity that had the potential to work way beyond the simple application of online bitcoin payments. This is how Ethereum emerged, a unique smart contract based crypto-commodity system.

Although Ethereum works as a standard blockchain network and has its own virtual currency token (ETH), it offers a lot more functionality than bitcoins. On Ethereum, one is free to create digitized assets that can represent any service, utility, or a real- or virtual-world commodity, and one can even create his/her own cryptocurrencies which are easily tradable and can have valuations independent from ETH.

These digitized assets, in the form of tokens, can be used to provide the desired kind of services or functionality, or as a representation of an asset, and constitute crypto commodity.

For instance, an app developer on the platform can use tokens to pay for the platform hosting fee, a user willing to watch blockchain-hosted online streaming media content can view content for certain value of tokens, a trader can use tokens to make and back speculative bets, and tokens can be used to back real-world contracts or settlement necessities.

One recent and highly popular application for such crypto commodities was the CryptoKitties game on the Ethereum network, which allowed people to use Ethereum to trade and breed virtual pet cats via smart contract, which results in some interesting and rare “cattributes.” The more unique a cat’s features, the more was its worth in ETH. (For more, see CryptoKitties Are Still a Thing. Here's Why.)

Essentially, any platform that allows representation of a tradable and fungible asset that offers a value, service, utility or functionality on the blockchain network through the use of unique tokens constitutes a crypto-commodity ecosystem. The self-regulation and fair transaction mechanism in crypto-commodities is ensured by binding the rules of valuation of tokens and working of contracts through a programmable code in the form of smart contracts and decentralized apps.

Other similar blockchain-based platforms that support crypto-commodity concept include NEO, Cardano, and QTUM. (For more, see Why China's New Ethereum "NEO" is the Next Big Thing.)